Pepsi-Cola Bottling Co. of New York - Bottler of the Year
January 1, 2006
Pepsi-Cola Bottling Co. of New York — Bottler of the Year
By SARAH THEODORE
If you can make it in New York, you can make it anywhere, or so the song famously tells us. That might be especially true for those who sell soft drinks in the Big Apple — after all, where else will you find such diverse consumer populations, cutthroat competition, and even the possibility of millions of dollars in parking fines just to deliver product?
The Pepsi-Cola Bottling Co. of New York not only has made it in the big city, but it has enjoyed sales growth in the high single digits despite an overall flat soft drink category, and it recently took over as the share leader in that market. The company boasts one of the highest bottle and can growth rates in the Pepsi system, and had more than five million cases of incremental volume growth during the past year.
Pepsi New York President and Chief Executive Officer Bill Wilson credits the company’s execution strategy and its partnership with PepsiCo — especially the commitment to innovation — for its growth.
“PepsiCo leads the league in big brands and big brand-building,” he says. “Today, 90 percent of our portfolio is PepsiCo products, and 90 percent of our growth in the past decade has been from products that didn’t even exist [10 years ago].”
For Pepsi New York, that innovation has allowed it to accommodate many consumer preferences, a definite plus in an area where product preferences are as wide ranging as the population.
“We were very much a carbonated soft drink company for a lot of years and still are,” Wilson says. “But the reality is, after this year, more than 50 percent of consumption will be in non-carbs. It was critical for us to be part of PepsiCo’s innovation because they were able to bring in products like Gatorade, Aquafina and strategic alliances with Starbucks and Lipton Tea.
“If you look at New York City historically, it has been a very strong market for regional players like Snapple, Arizona and Poland Spring,” he adds. “We had not been competitive in that realm. We always had the No. 1 or No. 2 products in the CSD area, and now, with the advent of our new products, it’s given us the impetus to grow faster than the marketplace.”
The New York bottling operation covers the five boroughs of New York City, plus Westchester County. The business is part of the Honickman Group, and was purchased by Harold Honickman in 1984. In total, it includes two bottling facilities and six distribution centers, with a seventh in the works. The company carries more than 250 SKUs, which also includes products from Cadbury Schweppes North America.
One account at a time
Pepsi New York has chosen a unique route to market and it believes that has been another important element of its success. It has teamed with 133 independent distributors who are responsible for 250 of its 300 distribution routes in Manhattan, Queens, Brooklyn and the Bronx. Staten Island and Westchester operations are company-owned. While it is not a commonly used method, the company feels working with distribution partners rather than handling all of its sales with in-house personnel creates a more effective system.
“Many bottlers would probably not use the model because, if you look at the migration of the business, it’s been to large box stores, Wal-Mart type outlets,” Wilson says. “If you look at New York, that hasn’t been the case.”
Much of Pepsi New York’s business is based on up-and-down-the-street sales, and the company feels its distributor network gives it an edge through personal relationships with store owners and managers and in-depth knowledge of the city’s diverse neighborhoods.
“We have a much greater advantage hitting the smaller type of accounts, up-and-down-the-street businesses,” says Michael Buonassisi, vice president of sales and marketing. “In other markets, you make one call and you impact 250 or 500 stores. We don’t really have that. It’s all one account at a time.”
Wilson adds: “You will find most of the distributors have been in the business for multiple generations. They create a continuity and trust with the retail customer, which is extremely valuable.”
“A lot of the cost drivers today are managed by them, which gives them a great incentive to grow their business a lot quicker than the rest of the world,” he says.
The company conducts monthly meetings with its distributors to gauge the effectiveness of promotions and execution and says it provides valuable insight into the marketplace. “I always say that I learn more from that monthly meeting than I do during the rest of the month because, in my mind, they are on the frontline, closest to the customer, the true cola warrior out there,” Wilson says. “They don’t hesitate to let their opinion be known and I think we all learn a great deal.”
Managing the mix
Pepsi New York’s unique retail channel mix, which emphasizes small outlets far more than super centers, means its product lineup also differs a bit from bottlers in other areas. Smaller “banner” stores make up 53 percent of its food business, and single-serve cold drink and 2-liter products, as opposed to multipacks, are among its top sellers.
When its competition moved from 2-liter to a 1.5-liter package in 2004, Pepsi New York used the change to its advantage, focusing on the package as a value size. In fact, it says it has one of the largest 2-liter markets in the country.
“As an example, by maintaining the value platform on 2-liter, we were able to capitalize on the fastest-growing segment, which was the 99-cent store concept, where we sell our 2-liters,” Wilson says. “That’s about a million-case proposition.”
Pepsi New York says it is grateful for the broad range of product offerings it has, thanks to PepsiCo and Cadbury’s innovations. But it also has become astute at knowing which products to offer in which neighborhoods, and not trying to force products where they don’t belong.
“We think one of the No. 1 success factors going forward is mix management,” Wilson says. “How do you take the diverse portfolio that we have to the diverse channels that are out there and do it profitably? You have to be sure you have the right products, and that what you generate is providing value to the consumer.”
Frappuccino, for example, is popular in Manhattan, whereas Tropicana flavors rule in the Bronx. New York City, overall, has one of the largest diet markets, as a percentage of mix, in the country, the company says, but in certain ethnic neighborhoods, diet promotions may be less effective than flavor promotions.
“[New York] is very diverse by borough,” says Scott Allmers, director of sales and marketing. “Manhattan compared to Westchester compared to Brooklyn are completely different in the way they’re made up. You’ve got to think of it differently in terms of your marketing.”
To that end, the company uses a variety of marketing tactics, executing larger programs created by PepsiCo, as well as developing channel-specific, and sometimes customer-specific, marketing. The company partners with neighboring Pepsi bottlers such as the Pepsi Bottling Group, to ensure they speak with “one voice” in complementary accounts. The bottlers work together through a retail trade committee to make marketing programs appear seamless from one territory to the next.
Within its own territory, Pepsi New York counts on its distributors to execute its promotions in the marketplace. “A lot of the new products and brands we’re introducing are very channel-specific, cold-drink products,” Buonassisi says. “It’s critical that we have the right programs in place and that we align with the distribution system and make sure that those folks are really engaged in what the objectives are.”
The company profits from PepsiCo’s sponsorship of Major League Baseball through promotions with the New York Mets and similar national sponsorships that can be applied on a local basis. It also has “prestige accounts” that offer exposure as well as sales opportunities. Pepsi, for example, is a sponsor of U.S. Open Tennis, which falls within Pepsi New York’s territory, and is broadcast throughout the country. It also covers such high-profile accounts as Grand Central Station, Coney Island, the Bronx Zoo and the New York Aquarium.
“When you can get into the U.S. Open and Grand Central Station and Shea Stadium, you’re creating millions of impressions,” Wilson says.
“It helps your business tremendously because along with presence comes respect,” adds Thomas Triglia, director of on-premise sales. “Not only does it take care of the business we have here, but it builds on tourism in New York. Wherever people gravitate, the presence is there and the impressions are there.”
The next big idea
The soft drink industry thrives on new products, and New Yorkers thrive on being the first to try anything new, so a large part of Pepsi New York’s focus is new product introductions. “When we do our annual operating plan, the first question and the last is ‘What is new this year?’” Wilson says. “With so much of our growth being driven by innovation, we’re always looking for the next big idea.”
He says PepsiCo’s commitment to innovation has benefited all parties, and helped the companies move from a “transactional relationship to a partnership based on mutual risk/benefits. They have skin in the game and we have skin in the game on all decisions.”
But innovation comes in all forms, not just new products, and for Pepsi New York, innovation also will include a new state-of-the-art bottled water line to be installed at its College Point, N.Y., plant this year, and continuing improvements to information technology.
“The water line will be the biggest capital investment in the short term,” Wilson says. “What’s also important, along with the go-to-market strategy and the operations strategy, is managing the information flow — how do you manage the mix, what is the right product at the right time? Upgrading our handheld technology and adding software enhancements have been important.”
As owners, the Honickmans have a policy of reinvesting profits into the business, which allows it to make such investments, Wilson says. “Our capital expenditure is probably two times the industry average, which allows us to invest in infrastructure and cold drink equipment.”
He adds that the Honickman management philosophy is to empower each of its divisions to run their businesses effectively, and feels that has been key to retaining management at the bottling company. “Anyone here has the skill set to go work in a Fortune 50 environment, but has chosen to make a commitment to the Honickman enterprise and build their careers here,” he says. “That kind of continuity adds a lot of value in customer relationships and commitment to the community.”
As far as consumer trends in the coming year, Pepsi New York is counting on the continuing popularity of its carbonated brands, pointing out that the buzz about non-carbs often overshadows the success of some CSD brands. The company says carbonated line extensions such as Wild Cherry Pepsi, Wild Cherry Diet Pepsi and Pepsi Lime have been very successful in its market. Its Fridge Mate 12-pack business also was up 16 percent through the end of last year vs. 2004.
“The consumer shift is on and part of it is the ‘graying of America’ — people are getting older so they will drink more non-carbs,” Wilson says. “But there still is, especially in New York City, a multi-cultural environment. You will have a lot of individuals moving to New York who probably have a younger profile. We think managing the ethnic mix gives us lots of growth. We’re very bullish on our core business.”
Pepsi-Cola Bottling Co. of New York operates two bottling plants and six distribution centers to serve the five boroughs of New York City and Westchester County. Its largest plant, which produces 23 million cases a year, is located in College Point, N.Y., and the second, which comes in close at 22 million cases per year, is in Brooklyn.
The College Point facility is three years old and serves as the headquarters for Pepsi New York, which moved several years ago from the historic Pepsi plant in Long Island City, overlooking the East River. While the famous Pepsi-Cola sign still stands, the Long Island City facility ceased production to make way for residential property. The 20 acres of land in College Point house both a plant and distribution center as well as the headquarters offices.
The bottling plant features six production lines, running everything from cans and 10-ounce bottles all the way up to 3-liter PET bottles. Its most in-demand line is its high-speed 20-ounce line, which fills 1,000 bottles per minute. That line, along with the plant’s 2-liter filling line, often runs 24 hours a day, six days a week. According to Robert Sherman, vice president of operations at Pepsi New York, the 20-ounce line is not only fast, but energy friendly as well.
“This line is very energy efficient,” he says. “We are filling at almost ambient temperature, so it saves a tremendous amount of energy. ”
Both the 20-ounce and the 2-liter lines feature multiple labelers to ensure constant operation. “If one goes down, we can keep the line running,” Sherman says. “With those two lines, we just can’t afford to be down.”
The facility currently produces carbonated and non-carbonated brands, but a new bottled water line is planned this year for production of Aquafina. The installation will include a new water room, water treatment system and lab to serve that line exclusively.
Because the territory has such strong single-serve and cold-drink sales, the College Point operation features an in-house vending maintenance center that services the 40,000 pieces of vending, fountain and visi-cooler equipment it has in the marketplace.
“We’re seeing tremendous gains when we place glass-front vendors in the market,” says Pepsi New York President and Chief Executive Officer Bill Wilson. “They are another example of pushing the availability envelope. In the short term, the cost may be a little higher, but it pays for itself very quickly.”
With 50 technicians working in the center, the facility is equipped to repair equipment, replace parts and refurbish machines before they head back into the field. It even features a state-of-the-art paint room that could, conceivably, be used to paint a car.
Located a short distance from the bottling operations in College Point is the company’s largest distribution facility. The building is historic in its own right, having once served as an airplane manufacturing facility for the military during World War I. The center services about 100 of the company’s 300 distribution routes, and ships as many as 10 million cases a year.
Warehouse capacity is approximately 500,000 cases, which includes carbonated soft drinks and non-carbonated products. The facility is responsible for loading trucks for Pepsi New York’s network of independent distributors, which means mixing pallets and loading each truck to the specifications of the owner. Some of the distributors operate on a pre-sell system, while others prefer to load the truck with what they expect to sell the next day. Most provide diagrams of the way they want the trucks set up, and warehouse personnel will load product as needed.
Each end of the warehouse has the major products arranged in mirror image to reduce travel time from one end of the warehouse to the other, increasing efficiency. Minor products are placed in the middle for both ends to select from.
PepsiCo’s focus on new product innovation requires the bottling company to constantly evaluate its bottling and warehouse operations to ensure they are keeping up with the number of SKUs. For example, a new distribution center in the Bronx is on the docket, with a planned 200,000-square-foot warehouse to take the pressure off of other facilities.
“We’ve invested and continue to invest on a long-term basis, in our facility,” says Mark Johnson, vice president of finance. “It’s part and parcel to the innovation… you have to step back and see what it takes up in operations space and pallet positions. You need incremental space. You need to address that side of innovation as well.” BI